Fed, real estate fear roils stock markets
NEW YORK » Wall Street finished an extremely volatile session mostly higher yesterday after investors, still jittery about mortgage-related problems at the nation's major lenders, decided to interpret comments from the Federal Reserve as suggestive of another interest rate cut.
In minutes from their Oct. 30-31 meeting, Fed policy makers said their decision to lower rates for a second straight meeting "was a close call." But in a separate economic forecast, they pointed to slowing growth next year, an uptick in unemployment and moderating inflation -- which would seem to portend a possible rate decrease.
Though the markets are pricing in a high chance of a rate reduction Dec. 11, when the Fed meets next, investors were on edge until the closing bell yesterday, and the major indexes changed direction several times.
Freddie Mac posted a $2 billion quarterly loss yesterday, escalating jitters about the government-sponsored mortgage lender and its larger counterpart, Fannie Mae. Also, an analyst downgraded Countrywide Financial Corp., pointing to continuing credit problems that had investors uneasy even before the Fed released its minutes.
"The headlines that were really roiling the market were Countrywide, Fannie Mae, Freddie Mac, and the FOMC minutes, which were discouraging for investors," said Joe Sunderman, vice president of financial market analytics at Schaeffer's Investment Research.
Countrywide's downgrade spurred market speculation that it might file for bankruptcy, which the company later denied. After plunging by more than 20 percent, Countrywide shares ended down 29 cents, or 2.7 percent, at $10.28.
"When there's lot of uncertainty in the market, the rumor mill runs full speed ahead," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
The Dow Jones industrial average rose 51.70, or 0.04 percent, to 13,010.14, after making 100-point swings in either direction throughout the day. The eventual gain followed Monday's swoon of more than 200 points.
Broader stock indicators also ended higher. The Standard & Poor's 500 index rose 6.43, or 0.45 percent, to 1,439.70, and the Nasdaq composite index rose 3.43, or 0.13 percent, to 2,596.81. The Russell 2000 index of smaller companies fell 1.00, or 0.13 percent, to 749.33. Stock markets overseas advanced.
Declining issues narrowly outnumbered advancers by on the New York Stock Exchange, where volume came to 1.87 billion shares.
Freddie Mac fell $10.76, or 28.7 percent, to $26.74, and Fannie Mae fell $9.33, or 24.8 percent, to $28.25.
Government bonds rose on the Fed's prediction of a slowing economy in 2008. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.05 percent from 4.08 percent late Monday.
Meanwhile, oil prices surpassed $98 a barrel yesterday, raising concerns that inflation may not moderate as the Fed anticipates. The dollar fell against most other major currencies, but rose against the yen. Gold jumped.